Sunday, July 16, 2017

"Those Of You Who Are Old Enough Will Really Get This"

I am adding yet more to my most recent two posts where I am complaining about this essentially side remark that Larry Summers made in his commemoration of his late uncle, Kenneth Arrow, in which he reports that at the party celebrating Arrow's Nobel Prize in 1972, Summers's other uncle, the late Paul Samuelson was supposedly "discussing how stupid Joan Robinson was." As it is, I should have added to my quote from his talk in the last post what immediately followed that snide and inappropriate remark. It is the title of this post: "Those of you who are old enough will really get this." This was then followed by "And they were discussing the turnpike theorem and the maximum principle and the Hamiltonian and whatever." After that, Summers then moved on to how they continued to discuss these matters until all the guests were gone and their wives were waiting there impatiently for them to wrap it up, with Larry himself, then a sophomore at MIT, also waiting so somebody could take him back to his dorm.

I think this additional remark is also worthy of note for being inappropriate. It essentially reinforces the idea that it was perfectly reasonable for Samuelson to have discussed "how stupid Joan Robinson was." After all, sufficiently senior insiders would "really get this," the strong implication being that of course Samuelson was right about Robinson, and these wise insiders would agree.

Except, of course, any truly knowledgeable insiders there, and there may well have been some as some of those involved in the Cambridge capital controversy, particular Eytan Sheshinski, who was specifically mentioned in another part of Summers's talk and who has long been based in Israel, would know that Summers was being very misleading, that whatever Robinson's level of intelligence,she and her allies in Cambridge, UK had won the debate, the controversy, with Samuelson having admitted that they had and subsequently changing his line about the appropriateness of using the concept of aggregate capital, even if the rest of those at MIT, especially Robert Solow, simply ignored this and continued on their merry way using the concept, even though Solow himself showed it be very weak in explaining anything about economic growth. In any case, few grad schools even teach about this controversy anymore while continuing to shove aggregate neoclassical production functions down the throats of unwitting grad students, hence Summers himself recognizing that one needs to be "old enough" to know to what he was referring to when he in effect inaccurately made it look like Samuelson had legitimate grounds for his snarky remark.

In discussing these two earlier posts in comments over on Economists View, RGC linked to the Wikipedia entry on all this. A curious tidbit near the end of that Wikipedia entry on the Cambridege capital controversy is that it quotes one of the participants, Edwin Burmeister, in 2000 stating that he and Leland Yeager in a 1978 Reply had admitted that assuming smooth substitutability of factors did not eliminate the possibility of capital-reversing. However, the 1978 cite does not appear in the References. As it was, it was in Econoimic Inquiry and was a reply to my "Continuity and Capital Reversal: Comment," which had appeared in the Jan.1978 issue of Econoimic Inquiry, which was on a 1976 paper by Yeager (which had won a prize) in Economic Inquiry on capital theory. Yeager had made the false claim that such smooth substitutability would eliminate those annoying capital theoretic paradoxes in a properly formulated Austrian model. I showed that he was wrong, and he and Burmesiter admitted it in their Reply to me (they were both at UVa at the time while that was my first year at JMU).

I have thought of this as well, Eubuiides. After all, at least one basis for making the claim against Joan Robinson would be that she did not operate with as high a level of math as PAS and KJA, although in fact she did have equations in some of her works, especially in what she considered to be her magnum opus, her _The Accumulation of Capital_ book, 1957 or thereabouts, named for the book of the same name by Rosa Luxemburg. But then, as has been noted previously, the deeply brilliant Thomas Schelling, same age as Arrow, was at one point claimed by Samuelson to be the most brilliant person he ever knew, although the math Schelling used was not all that much fancier or more sophisticated than what Joan Robinson. Yeah, sexism is looking likely.

I shall pass on a tale about her that I think I may have told before, but it is worth telling at this point. So, the first time I ever attended an AEA meeting was in December, 1973 in New York, the year after Arrow got his Nobel, one of the early ones handed out. I was in an elevator in the Hilton on Avenue of the Americas with Lionel McKenzie, purely by accident, saw his name badge. He was talking to somebody else, whom I had not heard of. He (who also deserved the Nobel but never got it), declared that the Nobel committee was probably in the near future going to award it to Joan Robinson for her 1933 book on The Economics of Imperfect Competition, but she would refuse to take it for not having been given to her for reasons she would like. Well, she lived another ten years, but never got it, although there is no question that she deserved it, even by the standards of then when recipients were "the giant trees in the forest," in comparison with the relative pygmies now getting it.

BTW, I heard from somebody who spoke with Assar Lindbeck about then, the man who dominated that committee for a long time, that there were two people who would get the prize "over my dead body." One was Joan Robinson, the other was James Buchanan. She died in 1983, but he Buchanan got his two years after that, with Lindbeck still on the committee and not dying on the spot.

Comment on Barkley Rosser on ‘Those Of You Who Are Old Enough Will Really Get This’

(i) Barkley Rosser reports “I am adding yet more to my most recent two posts where I am complaining about this essentially side remark that Larry Summers made in his commemoration of his late uncle, Kenneth Arrow, in which he reports that at the party celebrating Arrow’s Nobel Prize in 1972, Summers’s other uncle, the late Paul Samuelson was supposedly ‘discussing how stupid Joan Robinson was’.”

The geniality of Joan Robinson is engraved in everlasting granite with this verdict about economics: “Scrap the lot and start again.”

To her fellow economists she referred as ‘throng of superfluous economists’. Indeed, this is their track record. PROVABLE false• profit theory, since 200+ years,• Walrasian microfoundations (including equilibrium), since 140+ years,• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.

ALL theories/models that contain profit, maximization-and-equilibrium, or I=S/IS-LM are a priori false and this is more than 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks of renowned authors since 1947.

The throng of superfluous economists has not realized that the core of economics ― profit theory ― is false since Adam Smith.

(ii) Most famous example: Keynes.

This is the piece of evidence from the General Theory: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes did not come to grips with profit.

“His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Because profit is ill-defined the whole theoretical superstructure of Keynesianism is false. This holds also for Walrasianism, Marxianism, Austrianism.

(iii) All errors and misinterpretations are eliminated by turning to mathematical formalism and graphical representation.

The national accounts tell one important thing: profit is NOT the income of capital but the mirror image of dissaving, i.e. the household sector’s increase of debt.

(iv) From the accounting graphics it is immediately obvious that Keynes’s foundational identity “Income = value of output” is false. This seemingly commonsensical identity is the biggest methodological blunder in all of economics because it led ― among other errors/mistakes ― to the treatment of profit as income of capital.

Because the profit theory is false since Adam Smith ― “... one of the most convoluted and muddled areas in economic theory: the theory of profit” (Mirowski) ― economics became the failed science that it is today.

(v) The scientific incompetence of the representative economist is documented by the fact that he cannot tell the difference between profit and income until this very day. The ‘throng of superfluous economists’ has NO idea of the foundational concepts of their subject matter. From the freshman to the Nobel Laureate it is just proto-scientific blather.

Joan Robinson realized this and told the world. Now it is time to get rid of these folks.

"Sraffa realized that there is something fundamentally wrong with neoclassical marginalism. Up to this point he was right, of course. But, like all other heterodox economists, he failed to produce a valid replacement. "

The person who blogged this has also failed to produce a valid replacement. Sorry dude - but this is just trolling.

Here is Joan Robinson on profit from the third edition (1969, first edn was 1956) of her The Accumulation of Capital.

From a section on "Income and classes," p. 13

After talking about rents and rents, she says, "Profit is not such a simple concept. We shall use the expression quasi-rent to mean the excess of proceeds over running-costs of a business; and profit to mean the excess of quasi-rent over rent and the amortisation required to maintain the capital of the business. Interest is regarded as paid out of profit, along with dividents and the allocation made to their households by entrepreneurs who own their own businesses. The excess of profit over these payments is retained by the entrepreneur as the property of the firm."

In a section entitled "The Rate of Profit," p. 190, we have the following:

"The rate of profit on capital, in a short period situation, is an even more foggy notion than the level of profits earned by given equipment, for to express profits as a rate we must know the value of capital."

Of course, getting at this was key to her famous 1954 paper on "The Production Function and the Theory of Capital,"in RESTud, and this was indeed one of the issues that I was concerned with when I recently made my post on "Comments on Profit and Capita," which garnered 68 comments by our resident troll, who just repeated stuff he said there.

Regarding the claim that "there is NO profit in a 'real" economy," well, I think the US economy is a real economy, although perhaps it is not a 'real' economy, whatever that might be, and the measured share of national income that is in the form of profits is about 10% of it, around $1.8 trillion, a number pretty far from being "NO."

Also, while I realize that it is due to quite arbitrary accounting rules, although no less arbitrary than those underlying the "axioms" of our resident troll who keeps putting them here since he cannot get them published in a peer-reviewed journal, the US National Income and Product Accounts makes it the case that it is always true that Savings equals Investment. So, simply declaring that this is not true, is, well, wrong. Period.

Sorry, our resident troll was not responsible for all of the 68 comments on the Profits and Capital thread here, but he was with the possible exception of me, by far the largest supplier of those comments, many repeating themselves and many others he has put up here previously.

BTW, if you google "Joan Robinson and Profits," among the top 10 hits is Mark Thoma's reproduction with some cuts of a post I put up here last year on Joan Robinson as the greatest woman economist ever. On reading that it was funny that our resident troll showed up there, and he and I had quite an exchange, large portions of which were basically repeated during the 68 comments on Profits and Capital. He mostly just repeats and repeats and repeats drivel that has been repeatedly shown to be worthless garbage. Really. It would be funny if it were not ultimately sad and pathetic.

The consistency with which you grab into the toilet is remarkable. Joan Robinson said TWO correct things, which is TWO MORE than Arrow, Samuelson, Summers e tutti quanti ever said:• “Scrap the lot and start again.”• “An excess of saving over the value of investment is therefore a loss to firms … and an excess of investment over saving is an undistributed profit to the firms …”#1

So, Joan Robinson got macro accounting almost right (see also case (iii) c above) but did not see the significance for profit/capital theory and fell back to vacuous microeconomic argumentation.#2

Joan Robinson said the first. If she said the second, you will need to show where, troll, although she probably would say that it is often the case, as it is, but not one that necessarily holds in general.

As it is, she said many other far more important and more profoundly true things than either of those, but I am not going to provide a list.

Also, Egmont, I shall not respond further to anything you post on this thread.

New Economic Thinking: the 10 crucial pointsComment on Bradford DeLong on ‘How to Think Like an Economist’

Bradford DeLong gives a comprehensive overview of what he and the representative economist understands under economic thinking.#1 His post can be taken as an inventory of all that is wrong with economics. This in turn delivers the red thread for the systematic enumeration of necessary changes.

This means that the popular textbooks from Samuelson (1947) to Mankiw and Rodrik are scientifically worthless.#3

(ii) Paradigm shift

Economics is a failed science. The four main approaches are indefensible. The arguments of the representative economist about specific difficulties of his subject matter have to be taken for what they are: as excuses, more precisely as thoroughly refuted excuses.#4

The fact that an approach is axiomatically false means that it cannot be improved but must be fully replaced.

(iii) System science

Bradford DeLong argues: “While economics is not a natural science, it is a science — a social science.” This is a popular misunderstanding. Economics is a system science. Economics is about how the economy works and NOT about Human Nature/motives/behavior/action.#5 These issues are left to psychology, sociology, anthropology, history, political science, social philosophy, biology/Darwinism/evolution theory etcetera.

(iv) Separation of Politics and Science

The question about the good society is a political question that has to be answered in the political realm and NOT in the scientific realm. Already John Stuart Mill was quite explicit about the separation of politics and science.#6

(v) True macrofoundations

Fact is that the subject matter of economics is ill-defined or, in methodological terms, that economics is axiomatically false.

A paradigm shift means in practical term that economics has to move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations because if it isn’t macro-axiomatized, it isn’t economics.#7

(vi) Methodology

The failure of economics is mainly due to the Fallacy of Insufficient Abstraction. In other words, economists cannot rise above the level of storytelling. One story line is that of supply-demand-equilibrium and the wonderful feats of the Invisible Hand, the other story line is that of the struggle between the good guys=workers and the bad guys=capitalists. Storytelling is scientific rubbish but people like it.

The economy is an abstraction. The correct abstraction to start with is what Keynes called the ‘monetary theory of production’. Scientific theories are defined by material/formal consistency.

The analysis proceeds top down, that is it starts with macrofoundations which are step by step differentiated, in other words, the analysis advances from the elementary to the complex.

There is no vague blather, no rhetoric, no metaphors, no psychologism, no sociologism, no second-guessing of human motives or expectations and no storytelling. There is nothing but measurable variables, equations and graphs. Because all variables are measurable all conclusions are testable.